CaseWare Africa will release an updated version of its Probe Audit software on 7 November to help clients deal with the issues highlighted in the most recent Inspections Report issued by the Independent Regulatory Board for Auditors (IRBA). The update will also help auditors deal with the implications of IFRS 9 and 15, which became effective for all annual periods beginning on or after 1 January 2018.
The IRBA conducts inspections of audit firms and audit files annually and releases a report to highlight findings and themes that the audit industry should note. The IRBA’s 2017 Inspections Report, issued in May this year, indicates that many of the findings do not differ significantly from what was reported in the previous two years.
“As a trusted software partner for the auditing profession, we take these annual Inspection Reports very seriously, and use them as an opportunity to update and refine our software, as needed, to help our clients overcome the challenges indicated in the Report,” says Christiaan Steyn, Product Owner: Audit, CaseWare Africa. “The fact that the IRBA highlighted recurring issues prompted an in-depth consultation with our own experts as well as officials of the IRBA to ascertain exactly what issues auditors are struggling with.”
The IRBA highlighted four key areas where auditors are consistently falling short:
- Revenue auditing, which is of particular relevance as IFRS 15 introduces new guidance for accounting for revenue. Mr Steyn says that the nature of revenue has changed substantially over the past several years, especially as more complex warranties and guarantees have become the norm, as have loyalty points. All of these may create future liabilities that must be properly assessed. In addition, the fact that many performance bonuses are linked to revenue can tempt executives to overstate revenue. Revenue recognition remains a significant risk area and auditors must pay particular attention to this aspect.
- Inadequate documentation. The golden rule of auditing is that enough documentation should be on file to allow another professional reviewing an audit to come to the same conclusion that the auditors did. The IRBA found a consistent weakness in this area.
- Evaluation of misstatements on the Schedule of Unadjusted Audit Differences. The issue here is that the misstatements on the schedule should not be of a nature to affect the overall assessment of the company’s performance. However, auditors are consistently failing to analyse the cumulative effect adjustments could make to the ratios (such as the Price-to-Earnings (P/E) and Return on Assets (ROA) ratios) on which most investors rely. In other words, auditors need to probe the question of materiality and unadjusted journals much more deeply.
- Significant estimates. The IRBA Report indicates that auditors are too ready to accept corporate estimates of building, vehicle and other asset values and depreciation times. By writing off assets quickly, companies realise tax advantage prematurely. Auditors need to cultivate a professional scepticism with regard to significant estimates, as well as more generally, Mr Steyn says.
“The updated version of CaseWare Probe Audit will help our clients address the issues raised by the IRBA and the IFRS 9 and 15 standard, helping them to realise the benefits of automation while enhancing their compliance with relevant industry standards,” he concludes.